Another Study Obfuscates GPOs’ True Supply Chain Impact

Mark Twain once wrote, “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” I’d like to share a few observations as I “paused and reflected” after reading, and re-reading, the very well publicized University of Houston study on the hospital supply chain (PDF download, 1.1 MB) by David Peng and Arunachalam Narayanan.

I found that I was profoundly unmoved by the study’s conclusions. At a glance the survey appears to have been well structured, the demographics of the respondents seem representative and the number of respondents respectable. However, the executive summary was unremarkable. So, I just set the study aside and moved on. But people kept sending me the study, so I thought I must be missing something and opened it again for a closer look.

Before I go on, you should know that I love analytics. Teasing subtle information out of data is a passion of mine. Perhaps it’s the odd combination of engineering and behavioral science training that I’ve had, but I find pleasure in finding those things that make you go “Hmmmmmm” in data.

OK, that said, here are a few observations:

The respondents reported that, on average, 65% of their hospital supply spend is through a GPO. And 80% of the respondents disagreed or strongly disagreed that, “Contracting activities are outsourced in our hospital.” Hmmmmmm: GPOs are third-party entities that, among other things, provide contracting services to hospitals.

Perhaps this next observation will help clear up any confusion:

Some 70% of respondents agreed or strongly agreed with the statement, “We typically obtain lower prices through GPO contracts.” And about the same number agreed or strongly agreed with the statement, “We use GPO pricing as the starting point of our own contracting efforts.” Hmmmmmm: So both statements represent a truth for the majority, and at least 40% of the respondents find both to be true.

Is it any wonder that we have such a hard time describing the convoluted schemas in our industry to outsiders (more on that next month)? The good news: “Hospitals appear to actively improve supply chain processes via initiatives such as Lean…” the study finds.